M&M in race for bankrupt Saab; Must beat 4 suitors: Sources

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M&M in race for bankrupt Saab; Must beat 4 suitors: Sources

M&M is gearing up to make a bid for bankrupt Swedish automaker Saab with sources saying an offer could be made next week itself. But M&M is not the only one in the race, reports CNBC-TV18's Swati Khandelwal Jain.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » Mah and Mah BSE | NSE 30/05/12 Are Mutual Funds betting on Mah and Mah?

M&M is gearing up to make a bid for bankrupt Swedish automaker Saab with sources saying an offer could be made next week itself. But M&M is not the only one in the race, reports CNBC-TV18's Swati Khandelwal Jain.

Saab has at least four other suitors, which raises the question, what makes this bankrupt Swedish auto major so-sought-after?

Pravin Shah, CEO - Automotive Sector, M&M declined to comment.

The management remains tightlipped but the word is M&M is looking to acquire the assets of Saab Auto which has been put on sale after the company filed for bankruptcy protection in December 2011.

But with multiple suitors in the running including BAIC-Panasonic and Turkish PE firm Brightwell Holdings, what are the potential rewards and risks of acquiring Saab?

The Pros

What lies in favour of Saab is its strong brand reputation for safety and quality and its innovative engineering which includes its expertise in turbo-charged engines.

Saab's existing product portfolio is also likely to attract buyers. Its short-term product pipeline is very competitive, almost fully developed and close to market launch. Saab even has plans to enter a new offering within the premium compact segment and a new crossover.

Further, the buyer would be able to leverage Saab's global distribution network. Saab sells cars in over 60 countries and its global customer base has more than 1.5 million vehicles.

The Cons

Bankrupt SAAB'S financial health is, needless to say, poor.

The company was already on the brink of bankruptcy when General Motors (GM) sold it to the then auto company Spyker for USD 400 million but poor cash-flow and diminishing sales made matters worse.

SAAB registered a USD 263 million loss in the first half of CY11.

The company has about USD 100 million of assets but its debt are more at USD 325 million.

And there are other fundamental problems as well.

One major issue that could go against this sale could be that any buyer may face a major hurdle in getting production going again.

Former Saab owner - GM supplies technology for Saab's cars and has said it won't agree to hand over some technology licenses to a new owner especially in China since it will pose a threat to GM as China is its biggest market.

In fact, reports suggest that a recent bid by a Chinese carmaker Youngman has been rejected but an Indian player like M&M may not face this problem.